The New Business Toolbox: Help Your Business Do It Right The First Time

Posted on January 26, 2014


Lesson One: The Business Model

Being an entrepreneur — being a freelancer, starting something — is one of the highest impact things you can do. It’s your chance to make a dent in the universe. There are two elements that matter a lot:

  1. You’re in charge. You get to decide what’s next.
  2. You’re going to trade. The magic of small business is that you transact with someone else. Someone else is going to pay you more than what it cost you to make the thing you gave them. And they’re going to pay you less than they think it’s worth. Because why else would they transact?

The magic of trade is that both sides win.

How do we think deeply about the kinds of transactions that we’re trying to make happen, and how do we do it in a way that leaves no regrets, for us, or to the people we are transacting with?

Unlike big business, small business has tons of choices. You’re building a ship, but there are all these questions that come with that. Not just what kind of ship are you going to build, but where are you going to put it, in what body of water, for what purpose? It turns out that matching what you build to where you put it is actually more important than what you build in the first place.

You have the freedom to make these choices at the beginning, when they’re free, fast, and easy.

A business model is a scalable, repeatable process that you have, where your organization — your offering — creates value that someone else is willing to pay for.

Business models are a method for creating value. Sometimes there’s risk. There’s always assets. So, your questions are, What’s your asset? How do you defend yourself against other people who want your asset? How do I repeat this, and how do I scale it?

The best business models are monopolies. (I’m not talking about the Western Union or AT&T conglomerate monopolies). What I’m talking about is, you have something others don’t.

The fact that you’ve worked hard, risked everything, that you’re showing up, doesn’t matter if there is no business model — if there is no value created, if a trade doesn’t occur.

Lesson Two: Freelancing vs. Entrepreneurship

A freelancer is someone who gets paid when they work. They are selling their time. An entrepreneur is building something bigger than themselves. Both are fine, and they are both legitimate ways of building a small business. But you must be clear.

The challenge. If you’re a freelancer and you want to grow, you really don’t have a lot of choices. You can figure out how your work can be in more demand (which will allow you to raise your prices), you can figure out how to bring people who will help you leverage your work, and maybe, just maybe, you’ll find a partner or two that will help you scale horizontally.

But you are quite likely to make a very common mistake, which is as you grow, you will choose to hire the cheapest available person: you. If you get a gig you can choose to do it yourself, or send someone else to do it who can do the job just as good as you. If you do it yourself, you get to keep the money. And that’s our instinct. Hire ourselves to do our best work. Well, you can imagine what happens. Sleep and life go out the window. Suddenly your work is not as good as it used to be. Second, there is no one left to go get new business. There’s no one left to work on the business as opposed to in the business. And so you’re stuck, and you get frazzled.

The opportunity, when you’re a freelancer, if you want to grow, is either A) figure out how to do better work and talk about it better so that you are in more demand, or 2) every single task that could be done by someone other than you should be done by someone other than you. Once you have that mindset you’re starting to think more like an entrepreneur. Mark Zuckerberg should never write another line of code again, as long as he lives.

Tell yourself the truth. Take a look at the exercises, and look yourself in the mirror and ask, “Will I be happy hiring people to do everything that I do, and put myself out of a job, as I build a business that I could sell tomorrow, or, am I doing this because it’s about me and my craft?”

There is a difference between a “freelance extension of me,” and an “entrepreneurial profitable enterprise.” That’s the fork in the road. Think hard about it.

Lesson Three: Funding

One of the things that you can tell about someone who is a struggling small business person is they will say, “I will do __ once I get my funding,” as if funding is a gift from the Wizard of Oz. As if someone with tons of money will find them, and hand them tons of money with no strings attached. Or, possibly, a VC will look at their pitch from thousands that they get a day and say, “Yes.”

Here’s the thing. VC is famous, but it is completely irrelevant unless you are deliberately building a very specific kind of business, that I think is outside the scope of what we’re talking about here. You should just pretend it doesn’t exist. They’re not going to call you, and they’re not going to invest $5-10M in you.

Reason #1: They need at least a 10, maybe a 100 return on their investment in order to make it worth their while because most VC investments fail. That means, if they invest $2M in your business, and they don’t get $100M back when they sell it, it’s not a win. Is that really the kind of small business you’re building?

What about banks? Banks are run by bureaucrats, people who don’t want to get in trouble, who want to follow the system. What the system says is that they’re okay to loan money to someone if that person puts up enough security (their house, etc.), so if the money doesn’t get paid back, they can take it (your house). Zero risk. That’s the mindset of the traditional bank.

Why do you need at all?

You should only fund raise to buy an asset that makes money. You should never raise money to pay salaries, unless those salaries directly turn around into something that makes money.

Who should you raise money from?

There are professionals and amateurs. Professionals are like bankers, people who do this every single day. The odds are, it’s not going to be easy to raise money from a professional. But then there are also amateurs. Amateurs are people who invest in a broadway show, in movies, people who want a story that comes with their investment, who can dream of the big return, but who also want to look you in the eye and want to believe in your business.

And there are many ways to approach that sort of investor. If you give them equity — here’s 5% of the company — the minute you do that, you’re basically signed up to sell your business because the only way for them to turn their equity into cash is for you to sell. And that’s painful for a lot of small businesses.

There are other options. You can do a royalty deal. They invest, and they receive a percentage of profit as the business sells its product.

Lesson Three: Funding Continued

Debt has clear rules and timing. If this idea of debt, and this idea of equity freak you out, maybe you need to think about your business model. Maybe you need a business model, where, instead of taking money from a third party, it’s your customers and vendors that are funding your business. Maybe you need a business model where it’s your insight and your taste for risk, and your ability to bring wonder into the world that makes you money at the beginning, not the fact that you’ve paid a lot of money for an asset to get you started.

Most businesses benefit from big debt. And most businesses don’t benefit from a lot of people on the board of directors who are there because they loaned you some money, chiming in about what you ought to do next.

So, wherever you are on the arc, you ought to think deeply about professional vs. amateur, about debt, equity, or some alternative like royalties, and mostly, understand, that you have plenty of options if you’re willing to revisit your business model and understand that the banks aren’t there to make you happy.

Three alternatives:

1. Kickstarter. Most campaigns work because a tribe of followers who already trust you and know you show up to fund it. Spend time build a following. My kickstarter campaign was “funded” in 3 hours, but really, it was funded in nine years, because for 9 years I blogged, taught, connected, and then when I told people it was ready, it came. If you’re in too much of a hurry to do it the long way, I fear you’re in too much of a hurry to do it fast.

2. Friends and Family. This is where the desperate entrepreneur goes. I hope you will not set out to do this on purpose. It’s painful, it stretches things, it crosses things; it’s truly a last resort.

3. Personal Guarantee. You are making something magical when you build your business, and we know you believe in it, and we know you’re going to put your heart and soul into it. But guaranteeing any money you raise by putting up your house, your kid’s(‘) college education, and your future is not necessary. That means you haven’t done the hard work of getting the right kind of business model. There’s no question that people have funded amazing things on their credit card. But it doesn’t have to be you.

Lesson Four: Hiring

We live in “outsource” world. If you can describe it, if you can write down what you want, there is someone who is willing to do it for you, not very expensively, (e.g., Mail Chimp, Mechanical Turk). If you can spec it, you can outsource it.

My first thesis for the small business person of today is, unless the thing you’re going to be doing is incredibly time-sensitive, or value is created in it being done spectacularly well, you should outsource it. Your goal is not to build a big company, your goal is to build a company that works. As you find elements of that company that are generic, that are commodities that can be outsourced. Leaving jobs that require intuition, personality, genius, connection, those jobs that cannot possibly be outsourced, those are the jobs you need to fill your company with. Incredibly special people doing work that cannot be written down in a spec.

Where do you find those people? (Most people look for a shortcut.)

1. Hire people who are smarter than you. That doesn’t mean they have to be smarter than you at everything. But they have to be smarter than you at the job that you hired them to do. This is a pitfall that many small business people fall in to, because it is really security rattling to have someone in the office who is smarter than you. How dare you give that person instructions, or be that person’s boss. Many people become small business people to get away from a boss who wasn’t smarter than them. So, part of what you’re going to have to do going forward is come to grips with the idea that you are arranging a constellation of superstars. This is not an ordinary company filled with people are work cheap and who are easily replaceable. This is a company of prima donas, of divas, who demand care and feeding because they are worth it.

Magical companies create an environment that attracts this sort of people. The first thing you’re going to have to do is ask, What does it take to get a stream of incoming resumes of people who can’t wait to come and work for me, of people who aren’t looking for a job. If you can build a company full of people who aren’t looking for a job, then you’re on to something.

Lesson Four: Hiring, Continued

All a resume is, is a branded piece of paper proving that you’re good at complying with instructions. What we were looking for are people who walked and talked a different way.

You really ought to try before you buy. It’s possible to build a team by hiring people do projects first. Never hire someone until they’ve done a project with you and for you. All you learn from an interview is that they’re good at doing interviews.

Tina Eisenberg just wrote about her hiring technique and there are two parts that are worth mentioning.

1. She doesn’t do it sitting down. The walk is where you can talk like human beings.

2. She asks, “What’s your superpower? What is the thing that you have that other people don’t?” Because if the person you’re hiring doesn’t have a superpower, tell me again why they’re irreplaceable.

Lesson Five: Naming

What should you name your business? It needs a name for two reasons:

1) Your name gets people in the mood to hear what you have to say before you say it. If your name creates an environment, a feeling, a worldview before you even show up, it has accomplished something.

Before you get too into this: Starbucks, Nike, Amazon; none of those names have anything to do with what the company makes. So, setting the mood is not a requirement, it’s optional. We set the mood when we can, but mostly we want a name that doesn’t mean an awful lot because if it doesn’t mean an awful lot, it sets the table for you to pour meaning into the name, and that’s part of what you’re going to do. You’re going to build a reputation. You’re going to leave a trail behind that will put meaning on the table.

“Peet’s Coffee” doesn’t mean anything until it changes your morning, until the barista has dealt with you in a way that you remember, then suddenly value is added.

“Google” is a misspelling of a really big number.

That idea, that you’re going to build a blank that you’re going to put something into, frees you up to stop calling yourself, “Associated Coaches of North Carolina,” (and if there’s someone with that name, I apologize) because we get what it is, but you’ve also prevented that name from meaning more.

2) When I’m looking for you next time, I will find you and not someone who has the same name as you. It is unique and easy to find. The SEO is built right into your name if you do it right.

SEO is unreliable, unpredictable, and often expensive, unless what they’re searching for is a category in which only you exist. That idea, that you can be #1, just by picking a name in a category you can own makes it irresistible.

Tactic: There’s still merit in thinking about “A” in the name for order.

Tactic: Short isn’t worth very much anymore. What matters is a name and work worth talking about. When you do work that’s worth talking about and you have a name that I can spell that I want to share, I will. It doesn’t matter if your friends or employees like your name. All you care about — to quote my departed friend Jay Levenson (sp?) — is that one day soon, your accountant likes your name. Your purpose then is to have a name you can tolerate long enough that you can pour value into that name to get to the point where people say, “Well, of course that’s what that name means.”

You want to be resolute.

Here’s my simple technique. The process is simple. Start making lists, not of what you do, but of the mood you’d like to create. Things that bring an idea to mind.

Lesson Six: Partnerships

Money, equity, debt, they’re all connected into a braid of stress because as a small business person you’re trying to make something magical. Sooner or later effort is not enough. You need ideas, and you need money.

You may disagree, but most people say that Ringo was the luckiest guy of the Beetles. 50/50 feels right, but it’s also wrong. It is wrong to give away equity just because someone was there when you thought up the idea. It’s wrong to own half the company just because they thought up the idea. The idea isn’t the hard part.

The fact is, building a company is hard. Thinking of ideas isn’t. What is fair is to reward people for what they do, not where they were when they thought of the idea.

1. You must be present to win. One way is to share equity on an ongoing bases; earn your share every day.

Lesson Seven: Cash Flow

Cash flow and pricing. There’s a difference in accounting between making a sale and having the cash for that sale arrive at your office. There’s a difference between making a sale and having to pay the people who just made that thing you just sold. Cash flow is the measure of when did cash go in and when did cash go out.

For Walmart and Amazon, as retailers, the faster they grow, the greater the cash flow. For small businesses, the faster you grow, the less cash you have. What you have to think about as a freelancer, an entrepreneur, is what is my model? What is my cash flow model so that as my business grows, as I make an impact in the world, am I constantly going to be running out of money, or am I going to be constantly spinning off money? Given the choice, I’m going to vote that you pick a business model where the cash comes in early.

The best way to grow,

1. Have your vendors pay to grow your business. The people who are supplying you with stuff are the ones who are loaning you the stuff as opposed to the money.

2. Have your customers fund your business. If what you are making is so irresistible that they can’t live without it. They’ll pay you before you make it. That’s the essence of Kickstarter.

This idea of figuring out how to bootstrap, to have people who care about money less than you care about what you make enough to support what you’re doing lets you have positive cash flow forever. And once you eliminate cash flow as a problem you have a shot at growing your organization.

Lesson Seven: Pricing

The other half of cash flow is pricing. Most of the time when I talk to small business people, they sell their stuff for too cheap. I know why you do that. You do that because you think that if it’s cheap, you are less likely to get rejected. If it’s cheap, you’re less likely to disappoint people. If it’s cheap, you won’t feel badly because you’re trying to sell it. And these are three really bad reasons to price yourself cheap.

The only reason you should price your stuff cheap is because you’ve figured out a way to make something cheaper than anyone else can make it. If you haven’t, then being cheap is a race to the bottom. The problem with racing to the bottom is that you might win. And that’s not a place you want to be.

You’re in the business of creating value. You’re not in the business of being cheap. The answer is not to lower your price. The answer is to increase your value.

Price is a story. We decide how much to expect from you, what category to put you in based on how much you’re going to charge us. If something comes in at a quarter of the price, we often say, it can’t be as good. What signal is my price sending. Do you want people to walk in to the market and your product says, “Pick me because I’m the cheapest”? Or, do you want, “Pick me because I have the most value”? Earn the right to offer the value.

Please start your small business, but if you’re going to go through all that agony, stress, and joy, please make something worth talking about. Make something of extraordinary value, a business model you can sustain.

Artificial prices are the last refuge of the marketer who isn’t particularly good at his job. If that’s all you got, that’s not enough.


You have, with your laptop and the internet, all the tools as everyone else. The question is, How can you not? How could you walk away from this opportunity? You could build something. You could be the captain of the ship. You could make a ruckus and make real value for people who would miss you if you were gone. That seems like a pretty high calling to me. I hope you’ll give it a try. Go make a ruckus.

— VIA —

A $19 worth spending, and it feels as if I most definitely got greater value for the cost. It kinda astounds me (as someone completely oblivious to “business”) how even in this, Godin delivers the truths of the very content he is presenting. (I remember having the same feeling with Purple Cow.)

For those of you interested in actually taking the course, you can do so at Skillshare. And if you’re interested in just absorbing the content, just watching the videos, or just reading snippets of my notes here in this blog post, I implore you to read this from Godin’s blog, January 24, 2014:

On doing the work

I’ll be blunt: There’s virtually no chance I will ever learn to play the bass, or even the harmonica.

It’s not because there isn’t a huge range of useful instruction available. There is. No, it’s because even though I love glancing at this stuff, I’m just not persistent and driven enough to practice, to dig in, to get through the dip and yes, to do the work.

We used to live in an industrial age, a Smithian-Marxist world where the worker sought to do as little as possible and the boss tried to get the worker to do as much as possible. In our self-serve economy, though, that’s just not true. All sorts of roads, but you have to supply your own locomotion.

Almost eight thousand people have taken my Skillshare course so far, and the ones that got the most out of it all had two things in common: They did the project worksheets and they actively contributed to the online discussions. Learning is not watching a video, learning is taking action and seeing what happens.

“I’ll just watch and take notes,” is inconsistent with, “I’m here to learn.”

My philosophy is that it doesn’t pay to go to a conference unless you’re prepared to be vulnerable and meet people, and it doesn’t pay to go to a Q&A session unless you’re willing to sit in the front row. Reading blogs is great, writing one is even better.

There are more chances than ever to attend, but all of them require participation if you expect them to work.

The magic of this new economy is that instead of your work benefitting a fat cat boss with a mansion and a yacht, your work and your learning benefits you and the people you care about.

PS a great place to start is with this modern classic from Steve Pressfield.